UK Faces ‘Permanent Scarring’ to the Economy with Nearly 12 Million out of Work by the Summer

MANCHESTER, UNITED KINGDOM - FEBRUARY 25: A man begs for loose change on the streets of Ma
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Kurt Zindulka

A report found that the economic fallout from the Chinese coronavirus pandemic will leave 11.7 million Britons out of work by the summer, as the Treasury warns that the national lockdown will have a permanent impact on the economy.

Analysis conducted by the Reason Foundation, an independent think tank, found that an estimated 8.3 million people may be furloughed from work under the coronavirus Job Retention Scheme, up from the three million initially assumed by the Treasury. An additional 3.4 million people are expected to be unemployed during the second quarter of this year.

The government’s furlough scheme finally went live on Monday, which the report suggested could prevent “catastrophic depression-era levels of long-term joblessness” by helping companies weather the coronavirus lockdown and eventually bring back employees, according to Daniel Tomlinson, an economist at the think tank.

“The scheme is massive. In one sense, it is really bad news. It means eight million people will not be working. It shows the scale of the economic shock,” Tomlinson told The Telegraph.

“But it does mean they will not be unemployed, which would be much worse,” he added.

The scheme will cover 80 per cent of salaries, up to £2,500 per month, for those employees who have been forced to take leave from their work. Some 140,000 UK companies signed up to the programme in its first day, reports the BBC.

Last week, Chancellor of the Exchequer Rishi Sunak said that the scheme would be extended for businesses until June; however, he added that it could be extended again “if necessary”.

An internal review conducted by the Treasury found that the cost of the national lockdown could permanently impact the economy, casting a more dire projection than the Office for Budget Responsibility (OBR), which projected a return to normal rates of growth by the end of the year with a V-shaped recovery (steep decline, quick recovery).

The Treasury’s analysis found that Britain could be facing a slower U-shaped recovery (a long period of decline, then later recovery). Should the lockdown restrictions be reintroduced later in the year, the country could experience a W-shaped recovery (quick recovery, second decline).

“With every day that goes by the risk of permanent scarring to the economy grows greater because of unemployment and otherwise viable firms going bust,” a Treasury source told The Times.

“The Treasury’s analysis is far bleaker than the OBR’s… It asks whether we can even get to a narrow U or could we be looking in the worst case at a W if there is a second lockdown,” the source added.

The former Conservative chancellor of the Exchequer, Lord Lamont of Lerwick, said that while he was in favour of the lockdown measures, he cautioned that the economic impact is widening.

“The cost of this is accumulating, and at the moment a lot of the population are anaesthetised from the economic effects because of the support that has been given. That cannot go on for very long,” Lord Lamont warned.

“We’re approaching the end of the three-month period… after that, the costs become very big to bear… The pressure towards lifting the restrictions will become greater and greater,” he added.

Follow Kurt on Twitter at @KurtZindulka

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